Factory Decisions to Become Noncompliant with Labour Standards: Evidence from Better Factories Cambodia

Abstract

Efforts to improve working conditions in developing countries participating in global supply chains have generated a large and growing literature (Elliott and Freeman 2003; Harrison and Scorse 2010). Much of this literature is motivated by the common perception of very poor conditions in developing country factories (the term ‘sweatshop’ appears often in this literature). As a result, the usual approach is to focus on the debate around policies (or potential policies) to improve working conditions. One key issue in the debate centres on the optimality of such improvements (Brown et al. 2011a). While such improvements may be beneficial to workers, the effects on the factory as a viable economic unit are less clear. The conventional wisdom in economics suggests that if factories are optimizing and efficient, imposing additional constraints from the outside, including from other actors in the GVC, pushes them from their privately-determined optimal practices.¹ Poor conditions are the result of optimizing behaviour of firms, and attempts to improve working conditions from the outside threaten factories and, therefore, the jobs of the very workers that the policies were intended to help. Some have even suggested that ‘sweatshop’ conditions are a necessary stage of economic development.